FOCUS 10
Key considerations
Strong cash management begins with asking basic questions of each operating cashfl ow cycle as well as any other areas of the business that tie-up cash:
Purchase to pay (P2P) Despite often long and complex supply chains, oil and gas companies are often presented with opportunities to improve the effi ciency of the P2P cycle. At a summary level opportunities usually fall into four categories – 1) Terms extensions; 2) Compliance to existing terms; 3) Process effi ciency and 4) Tactical measures.
• How many organisations excel at negotiating an initial contract but then let their focus slip?
• How are suppliers paid and could this be further improved? Think in particular about the number of payment runs, weekend due payments, payment triggers, etc. Consider as well whether there is a consistent and sensible global payment policy?
• Consider whether terms are too skewed in favour of the suppliers and do they appropriately refl ect the associated supply chain and inventory risk?
• Is there appropriate segmentation of suppliers in order to understand relative opportunities?
• And the lowest hanging fruit of all…are businesses actually complying to agreed terms or are they paying suppliers early or to the wrong terms?
Forecast to deliver (F2D) A common challenge in emerging markets is establishing the right level of inventory that balances the supply chain risk. There is a tendency for oil and gas companies to base inventory levels on the possibility of a ‘force majeure’, which has the potential to stop production from upstream operations and major capital projects. Often the decision fails to take into account that others along the supply chain have made similar assumptions, which leads to a compound effect. In some cases we have seen a 50 percent excess in inventory over what we would consider suffi cient levels.
• Does the business understand the drivers of inventory levels?
• Are supply chain risks documented and understood?
• Are safety levels of inventory set with regard to all drivers – e.g. lead times, supply chain risk, MOQs, production capacity, demand forecasting, etc.
• Is the stock level being driven by tank farm capacity rather than true inventory drivers?
• Do structural opportunities exist to improve tank capacity and reduce heels?
• What other inventory exists within the business that could be better controlled? E.g. spare parts and bi-products such as coke.
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CASH MANAGEMENT
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